Welcome to the Money Reform website

If you have ever wondered why the world is in the state it is in; why
the environment is being destroyed, why the first world has so much and
yet is in debt, the third world has so little and is also in debt. Then
this site is for you.

How many times have we been told that this school, or that hospital can't
be built unless we raise taxes? Or you perhaps you can't afford to take
a cut in wage, to take the job you really want, because you have a mortgage
and rising debts that you took out, to get money in order to support yourself
and your family. Isn't it odd that we buy products that during their manufacture
have destroyed forests, polluted seas and contaminated the air we breathe
because we can't afford to pay for the better alternative.

Money is at the heart of all our lives. It is time to understand what
money is and how it works.

The things you will read, will appal you. You have been deceived for
a long time.

Please read the information on this site. It is imperative that we understand
the true cause of our world's problems so that we can solve them.

By understanding how money really works you will be joining a growing
movement of socially and environmentally conscious people who want to
make a positive difference to our world and our own financial well being.

The Money Reform Party has been set up to address these problems

Now is the time.

Is the Governor of the Bank of England a secret money reformer?

One of the questions frequently asked of money reformers is the likelihood
of their objective ever coming to fruition.

We live in an age of cynicism. With bankers expecting to cream off fat
bonuses whilst their customers struggle to avoid bankruptcy, and with
politicians of all the major parties failing to inspire with a noble vision
of the future and pocketing ill-gotten 'expenses' whilst the economy crumbles,
perhaps such cynicism is entirely justified. 'The great and the good'
of our society and economy, 'they' who run things, have proved to have
feet of clay.

Thus it is that when money reformers attempt to spread the word for their
policy, explaining the fundamental faults inherent with the debt/money
upon which our economy currently depends, and further expounding the myriad
benefits that will flow from reform – the lifting of the debt burden
from society at all levels, an easing of the cost of living for old and
young, rich and poor, and a move towards a fairer, more stable and more
sustainable future – it is easy for cynics to sneer and declare
that 'they' will never let it happen.

Who 'they' are is rarely explained. 'They' remain largely unidentified,
but 'they' are the people who run things. For many people, perhaps most,
'they' are corrupt politicians, greedy bankers, stifling bureaucrats,
cost-cutting businessmen, myopic journalists, and maybe, even, the complacent
'haves' and the ignorant 'have-nots' of the rest of us.

Almost undoubtedly, amongst this number, the Governor of the Bank of
England is likely to be accorded a prominent position, yet perhaps such
a judgement is misplaced. The present Governor, Mr Mervyn King, set out
his views of the banking systems of Britain and America in a speech given
in October 2010, the text of which is repeated below.

This speech was given in terms that would be familiar and acceptable
to an academic and business audience, with many laborious references to
history, and to long dead economists (about which, at least, Keynes was
right) and their theories, but there is much within it to suggest that
Mr King is not at all antipathetic towards the aims of the money reform
movement.

He rather dismisses the recent increase in capital requirement of Basel
III as entirely inadequate. He refers favourably to the prevention of
fractional reserve banking and calls the current system of banking (and
presumably of money creation, as they are inseparable processes) the worst
possible.

From a background where once the raising of an eyebrow was used to convey
the deepest concern over a bank's practices, this is strong stuff. Read
the speech yourself and decide.

Read Positive Money's submission to the Independent Commission on Banking

What Have We Recommended?

We've recommended the implementation of full-reserve banking for the
UK, with power over the issue of the nation's money supply kept out of
the hands of both vote-seeking politicians and profit-seeking banks. It
is a proposal that could be implemented quickly (comfortably within 12
months) and that would have huge benefits for the economy as a whole.
It may not be perfect, but it would be many times better than any banking
system that we have had in the last 500 years. Download the submission
below and let us know what you think.

A Chance to End Debt as the Basis of the UK Money Supply

On 20th October 2010, the Government announced its Comprehensive Spending
Review. It wishes to reduce its high level of debt. The National Debt
now stands at over £900 billion.

Their desire is understandable. Debt is expensive. It costs money to
be in debt, even for the Government, which is charged the lowest interest
rates available commercially.

Unfortunately, there is a fundamental problem with the Government's plans.
Almost the entire UK money supply consists of someone else's debt, whether
that someone else is a private household, a business or the Government.

Total UK Money Supply and Debt

The total UK money supply (according to the Bank of England's Monetary
and Financial Statistics) is £2,200 billion. Of this total, a mere
£57 billion is in the form of notes and coins, and a whopping £1000
billion consists of what the commercial banks owe to each other –
interbank debt.

This money supply is supported by nearly £1,500 billion of household
debt - mostly mortgages, about £500 billion of corporate debt, over
£900 billion of government debt - the National Debt, and, of course,
£1000 billion of interbank debt.

If one removes the interbank debt from both sides of the equation, then
the money available to the productive part of the UK economy - £1,200
billion - is supported by nearly £3,000 billion of private and public
debt.

Paying off debt

Over the next four years, there will be cuts in public spending of £81
billion and an increase in taxes by £29 billion. This will amount
to a reduction in the UK money supply of £110 billion, which is
a significant proportion of the sum in circulation.

When a debt to a bank is paid off, that much money disappears from the
money supply. For example, suppose you owe your bank £1000, in say
a separate loan account, and suppose you earn or otherwise receive £1000
which you put into another account - a current account or a savings account,
say. You still owe your bank £1000, but now also your bank owes
you £1000. With money in a bank account, all you really have is
an IOU from the bank for the sum involved. Effectively, you are each holding
IOUs issued by the other.

If you decide to use your £1000 to pay off your debt, you are effectively
just returning the two IOUs to their issuers. You would no longer have
a debt, but the £1000 owed to you by the bank and which, hitherto,
formed part of the UK's £2,200 billion money supply would cease
to exist, because the bank would no longer owe it to you.

So if the Government pays off £110 billion of its £900 billion
debt, it will reduce the UK money supply by £110 billion, out of
an effective stock held by the productive economy of £1,200 billion,
but that is not all.

The £3000 billion or so collectively owed by households, corporations
and the Government (and owed mostly to the banks) has to be serviced.
That is to say, interest must be paid and a slice of the principal should
also be paid off each year. Assume an interest rate of 5% and £150
billion of interest has to be paid each year. Assume an average lifetime
of the above debts of !5 years, and £200 billion of principal has
to be found each year.

In both cases, the payment of interest and of principal, the withdrawal
of these sums from bank accounts to pay the banks will result in a further
reduction in the money supply, unless compensating new sums are borrowed
into existence.

In a nutshell, about £350 billion of new borrowing is needed each
year to pay off old loans whilst keeping enough money in existence to
enable the economy to function, and this figure needs to grow exponentially
year on year as the debt rises inexorably. Whilst for the economy to grow,
the growth of the money supply will have to be even greater.

What scope for private borrowing?

If the Government is not going to borrow this money into existence, then
it will be up to the private sector. Over the past two years, private
sector borrowing has flat-lined, declining slightly if anything, borrowing
barely enough to cover the repayment of past principal. Only the massive
Government borrowing of the past two years has kept enough new money coming
into the economy to prevent a worse recession than we have so far experienced.

For much of this period (19 months to date), base lending rates have
been at the record low rate at 0.5%. They can hardly go any lower, yet
private sector borrowing shows no signs of increasing. There is a reason
for this. Of those able and willing to borrow, most are already borrowed
up to the hilt. Few people and few businesses are in a position to borrow
the hundreds of billions of pounds that are needed simply to prevent a
deeper recession, never mind grow the economy.

The Government might think that it is driving down a slip road onto the
motorway, but the sad reality is that it has driven ever more deeply into
the cul-de-sac that was waiting for us all.

The Financial Services (Regulation of Deposits and Lending) Bill

Riding to the rescue, to save us all from the impasse in which we find
ourselves, come a couple of back-bench Conservative MPs, Douglas Carswell
and Steve Baker with their above named bill.

The Bill proposes ending the privilege currently held by the retail banks
whereby they may create credit based solely on their borrowers' debts.
In the future, bank lending will be limited to the amount deposited with
them by their savers (as many people wrongly suppose to be the case at
the moment).

This will prevent the further expansion of the money supply over and
above the amount created by the Bank of England. It will therefore permit
the Bank of England to move towards increasing the amount of positive,
debt-free money within the economy without fear of inflation.

As the Bank of England is a government agency, this money will be available
for the Government to pay off its debts without the need for public spending
cuts, tax increases, reducing the nation's money supply or for more households
or businesses to go ever more deeply into debt.

Despite it being a private member's bill, this piece of legislation could
prove to be the most important ever passed during anyone's lifetime. We
need to give it as much support and publicity as possible.

You can contact your MP and ask him or her to support this bill by writing
to them at 'House of Commons, London, SW1A 0AA' or by emailing them or
telephoning them. For contact details see www.theyworkforyou.com

An Extract from HANSARD

15 Sep 2010 : Column 903
Financial Services (Regulation of Deposits and Lending)
Motion for leave to bring in a Bill (Standing Order No. 23 )
1.33 pm
Mr Douglas Carswell (Clacton) (Con): I beg to move,
That leave be given to bring in a Bill to prohibit banks and building
societies lending on the basis of demand deposits without the permission
of the account holder; and for connected purposes.
Who owns the money in your bank account? That small question has profound
implications. According to a survey by Ipsos MORI, more than 70% of people
in the UK believe that when they deposit money with the bank, it is theirs-but
it is not. Money deposited in a bank account is, as established under
case law going back more than 200 years, legally the property of the bank,
rather than the account holder. Were any hon. Members to deposit £100
at their bank this afternoon or, rather improbably, if the Independent
Parliamentary Standards Authority was to manage to do so on any Member's
behalf, the bank would then be free to lend on approximately £97
of it. Even under the new capital ratio requirements, the bank could lend
on more than 90% of what one deposited. Indeed, bank A could then lend
on £97 of the initial £100 deposit to another bank-bank B-which
could then lend on 97% of the value. The lending would go round and round
until, as we saw at the height of the credit boom, for every £1
deposited banks would have piled up more than £40-worth of accumulated
credit of one form or another.
Banks enjoy a form of legal privilege extended to no other area of business
that I am aware of-it is a form of legal privilege. I am sure that some
hon. Members, in full compliance with IPSA rules, may have rented a flat,
and they do not need me, or indeed IPSA, to explain that having done so
they are, in general, not allowed to sub-let it to someone else. Anyone
who tried to do that would find that their landlord would most likely
eject them. So why are banks allowed to sub-let people's money many times
over without their consent?
My Bill would give account holders legal ownership of their deposits,
unless they indicated otherwise when opening the account. In other words,
there would henceforth be two categories of bank account: deposit-taking
accounts for investment purposes, and deposit-taking accounts for storage
purposes. Banks would remain at liberty to lend on money deposited in
the investment accounts, but not on money deposited in the storage accounts.
As such, the idea is not a million miles away from the idea of 100% gilt-backed
storage accounts proposed by other hon. Members and the Governor of the
Bank of England.
My Bill is not just a consumer-protection measure; it also aims to remove
a curious legal exemption for banks that has profound implications on
the whole economy. Precisely because they are able to treat one's deposit
as an investment in a giant credit pyramid, banks are able to conjure
up credit. In most industries, when demand rises businesses produce more
in response. The legal privilege extended to banks prevents that basic
market mechanism from working, with disastrous consequences.
As I shall explain, if the market mechanism worked as it should, once
demand for credit started to increase in an economy, banks would raise
the price of credit-interest rates-in order to encourage more savings.
More folk would save as a result, as rates rose. That would allow banks
to extend credit in proportion to savings. Were banks like any other business,
they would find that when demand for what they supply lets rip, they would
be constrained in their ability to supply credit by the pricing mechanism.
That is, alas, not the case with our system of fractional reserve banking.
Able to treat people's money as their own, banks can carry on lending
against it, without necessarily raising the price of credit. The pricing
mechanism does not rein in the growth in credit as it should. Unrestrained
by the pricing mechanism, we therefore get credit bubbles. To satisfy
runaway demand for credit, banks produce great candy-floss piles of the
stuff. The sugar rush feels great for a while, but that sugar-rush credit
creates an expansion in capacity in the economy that is not backed by
real savings. It is not justified in terms of someone else's deferred
consumption, so the credit boom creates unsustainable over-consumption.
Policy makers, not least in this Chamber, regardless of who has been in
office, have had to face the unenviable choice between letting the edifice
of crony capitalism come crashing down, with calamitous consequences for
the rest of us, or printing more real money to shore up this Ponzi scheme-and
the people who built it-and in doing so devalue our currency to keep the
pyramid afloat.
Since the credit crunch hit us, an endless succession of economists, most
of whom did not see it coming, have popped up on our TV screens to explain
its causes with great authority. Most have tended to see the lack of credit
as the problem, rather than as a symptom. Perhaps we should instead begin
to listen to those economists who saw the credit glut that preceded the
crash as the problem. The Cobden Centre, the Ludwig von Mises Institute
and Huerta de Soto all grasped that the overproduction of bogus candy-floss
credit before the crunch gave rise to it. It is time to take seriously
their ideas on honest money and sound banking.
The Keynesian-monetarist economists might recoil in horror at the idea,
because their orthodoxy holds that without these legal privileges for
banks, there would be insufficient credit. They say that the oil that
keeps the engine of capitalism working would dry up and the machine would
grind to a halt, but that is not so. Under my Bill, credit would still
exist but it would be credit backed by savings. In other words, it would
be credit that could fuel an expansion in economic capacity that was commensurate
with savings or deferred consumption. It would be, to use the cliché
of our day, sustainable.
Ministers have spoken of their lofty ambition to rebalance the economy
from one based on consumption to one founded on producing things. A good
place to begin might be to allow a law that permits storage bank accounts
that do not permit banks to mass-produce phoney credit in a way that ultimately
favours consumers and debtors over those who create wealth. With honest
money, instead of being the nation of indebted consumers that we have
become, Britons might become again the producers and savers we once were.
With a choice between the new storage accounts and investment accounts,
no longer would private individuals find themselves co-opted as unwilling-and
indeed unaware-investors in madcap deals through credit instruments that
few even of the banks' own boards seem to understand.
Question put and agreed to.
Ordered,
That Mr Douglas Carswell and Steve Baker present the Bill.
Mr Douglas Carswell accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday 19 November
and to be printed (Bill 71).

The Proposed Bank of England Act

This is a reform that could prevent a future financial crisis, clear
the national debt, and restart the economy.
It cures the sickness in our economy and financial system by tackling
the root cause of the problem, rather than just the symptoms.
It would make the 'inevitable' cuts in public services completely unnecessary,
reduce the tax burden by up to 30% and allow us to clear the national
debt. It takes control over the UK's money supply out of the hands of
the commercial banking sector and restores it to the state, where it can
be used to benefit the economy, rather than providing a £200 billion
annual subsidy to the banking sector.